California May Launch Public Bank, Which Could Help Take the Power To Manipulate the System Away From the Insolvent Giant Banks

California Passes Bill to Study Public Bank

The California legislature has passed a bill to study public banking. If you don’t know what public banking is (North Dakota already has a public bank, which is helping to keep that state in the green) and why this issue is so important – read this and this for background.

This could take away the power of the giant, insolvent banks to manipulate the money system. See this and this.

Governor Brown Is On the Fence On Vetoing Or Signing … But He’s On the Fence

“We don’t want to put the government into the banking business – we want to get the banks out of the money creation business!” – Dick Distelhorst

The correct solution to the crisis was presented in Stephen Zarlenga’s speech at the U.S. Treasury in December, 2003, titled “Solution to the States’ fiscal crisis” (read it at http://www.monetary.org). That solution has become the proposed American Monetary Act. In California, Governor Schwarzenegger has had a copy of The Lost Science of Money (the historical research which led to the solution) on his bookshelves since the spring of 2004.

Historical experience has taught us what we need to do:

1. Put the Federal Reserve System into the U.S. Treasury.

2. Stop the banking system creating any part of the money supply.

3. Create new money as needed by spending it on public infrastructure, including human infrastructure, e.g. education and health care.

The American Monetary Institute is a publicly supported charity founded in 1996. The real outcomes in society – whether there will be general economic justice or corrupt financial privileges for the few – are usually determined by the structure of a society’s monetary system.

The 7th Annual AMI Conference will be held at University Center, in Chicago, Sept. 29 – Oct. 2, 2011. The deadline for early registration is soon! We continue to confirm additional speakers for this year’s conference.

— Why States Going into the Banking Business is a Distraction, not a Solution to their Fiscal Problem and Reforms Nothing, American Money Scene Bulletin 5. This article is a comprehensive critique of the notion that instead of fixing the problem, governments should go into the banking business!

We, at the American Monetary Institute, have put together this list of resources that we hope can be a great starting point for any new student of monetary reform. Also, if you sign up to our email list using the box to the right, you will receive several of these articles over a span that will allow you to digest the material.

1. The Need for Monetary Reform

This article is an overview of our current monetary system and what needs to be done to fix it. It is a great, concise piece that can serve as an comprehensible introduction for anyone interested in learning about monetary history, theory or reform.

2. Monetary Reform Frequently Asked Questions

Answers to frequently asked questions on monetary reform issues such as, “Won’t the government creating new money for infrastructure and other expenses cause inflation?” and “How can we trust government with the power to create money? – Won’t they go wild (and again cause inflation)? Don’t you know that government can’t do anything right?”

3. 1930′s Chicago Plan

This plan was developed by the best economic minds in the country during the Great Depression. AMI’s proposed monetary reform legislation is closely modeled after this plan.

4. The Usury Problem Remains

This article outlines the inherent, structural flaws of a system which allows (and promotes) usury.

5. US Treasury Speech

This speech describes how the financial crisis came about, how it was the only possible outcome given our current monetary system, and what steps must be taken in order to put time on the side of justice in our monetary system.

6. Comprehensive Explanation of Monetary Reform (PDF)

A brief, 32 page, explanation of monetary reform. Great for those beginning their interest in monetary reform.

A Brief History of Money in the USA Dennis Kucinich launches the American Monetary & Financial Security Act in Congress!
American Money Scene 5-August 16, 2009
On August 23, 2009, in American Money Scene, by AMI

Dear Friends,

As you know the states are in terrible financial condition, cutting back on necessary programs, laying off people and raising taxes. This has been the case for several years, and thanks to the banking crisis has reached horrific levels in some states. This is the time – an opportunity to push for real reform, such as the American Monetary Act. But instead, ill advised suggestions have recently been circulated on the internet that the states go into the banking business to solve or lessen this problem. The American Monetary Institute concludes that these suggestions, though they may be for well meaning purposes, are bad ideas for a lot of reasons as described below. People involved in real monetary reform understand that the private creation of money through what amounts to a fractional reserve accounting system is at the heart of the monetary problem which has plagued humanity and has now brought down the world economy. That vicious system by which money is created in our society must be reformed, not imitated. But there is no reform whatever in the proposal for states to enter the banking business.

It would also distract lawmakers from facing the facts about the national reforms that are needed to solve this crisis and institute a money system grounded in justice, which will operate to promote the general welfare. It would even sanction and endorse the present fractional reserve banking system, the source of the problem. That system requires condemnation and structural reform, not endorsements! We now have a blog at the end of this article below, so that you may record and post your reactions to Mr. Walton’s research.

Sincerely,
Stephen Zarlenga
Director, AMI

Why States Going into the Banking Business Would be a Distraction, not a Solution to their Fiscal Problem

by Jamie Walton, AMI researcher

“We may not be able to stop them, but we can join them. We the people need to play the bankers’ game ourselves.”1 – that was written by one of the promoters of the notion that the state governments should go into the fractional reserve banking business to beat Wall Street at its own game and solve their fiscal problems.

What an insult to humanity! How about a dose of morality and common sense. Isn’t that like saying: “We’re victims of organized financial crime, so lets join the criminals!”

Trying to beat Wall Street at its own game is obviously not the answer. As Albert Einstein once said, “We can’t solve problems by using the same kind of thinking we used when we created them.”

Forty-eight States currently have budget deficits and many are sharply cutting services to try to close ‘fiscal’ gaps opening up to an average 24% by 2010.

Some attention has recently been given to the idea that State governments can get out of their fiscal problems by setting up their own banks. This is mainly a distraction away from genuine reform of the system, as encapsulated in the proposed draft American Monetary Act (more about that below).

The argument being put forward is that State governments can increase their revenues without increasing taxes by collecting profits from State-run banks. The proposal suggests that State governments go into the banking business and “fan” their deposits into 10 or 12 times as much in loans, using ‘fractional reserve’ or ‘capital adequacy’ rules, to cover fiscal gaps with bank profits.

This is a foolish suggestion, for several reasons.

1. You don’t solve a problem with more of the problem.

This scheme for states to go into the banking business would only ‘serve to protect’ the status quo. The ‘proposal’ completely fails to confront the main problem identified by all serious monetary reforms: ‘fractional reserve’ banking. Instead, it actually endorses and sanctions this vicious and destructive process, by suggesting that State governments engage in it – it’s immoral!

2. What the promoters describe is not how banking operates.

No single bank can multiply its deposits by 10 or 12 times in loans, they can only make loans (or purchases of securities, e.g. bonds) up against 90-95% of their deposits; these loans create new deposits, which, when spent, are most likely transferred to other banks; then receiving banks can again make new loans up to 90-95% of their deposits, and so on. This ‘process’ is repeated indefinitely, in ever-decreasing increments, and the effect over time is that the banking system as a whole multiplies those initial deposits by 10 or 12 times. The only reason some progressives might be considering this proposal is they don’t understand how fractional reserves work.

This process is carried on at great cost to the community as a whole, because every new loan (or new security purchase) is additional interest-bearing debt.

As presently operated, banks can be viewed as debt factories; they primarily create debt and only create the bulk of our money supply as a debt byproduct. Banks make profits and stay in business by putting the community as a whole into more debt than it can repay in any given time. This results in a net claim against the community going into the future. While some profits are paid to shareholders as dividends, this is only a small percentage of the debt created. If a bank was State-owned, the ‘shareholders’ would nominally be the people of the community, but any profits would still be based on the indebtedness of the community. That’s the inevitable outcome, no matter who owns a bank, because the same rules apply to all banks in the banking system.

But; the question is not who should be the beneficiaries of perpetual claims against the community, the question is should anyone be the beneficiaries of perpetual claims against the community – why place ourselves forever on a treadmill just to have what we’ve already got? It makes no sense.

3. The problem is being misidentified as interest, when the problem is debt.

Proponents of the scheme are alleging that interest collected by “private” banks is kept out of circulation and is therefore not available to repay loans the bank have made. But this is not true. Most, if not all, interest re-enters the system in some way at some time (e.g. as expenses, dividends, investments, etc.). This is not the problem. The problem is almost all of our money is created with a debt attached; it is ‘borrowed into existence’ from banks, who create it when we have to borrow it.

As our economy grows, we need new money, but almost all of the new money is presently created with interest-bearing debt, so almost every new dollar has more than a dollar owing on it – so it has to ‘earn’ more than a dollar and pay it all back to banks (who never had it in the first place). Who owns and runs any particular bank makes little or no difference because the debt-based money-creating banking system will still own and run us, on a treadmill.

Money doesn’t have to be created like this; coins aren’t, they’re just created as money, with no debt attached; when they’re issued, it’s revenue for the U.S. government, saving taxpayers $$$. All money can be created this way. And; if we don’t start with any debt, then we don’t start with any interest either.

With that in mind, let’s look again at the States’ fiscal crisis.

State governments receive money from the community for the provision of public services and the support of volunteer services. These are generally things that are needed in the community which aren’t commercial in nature, they’re not the types of things that it’s either possible or desirable to make a profit on (e.g. rape crisis centers, battered women’s refuges, assisted housing for people with physical/mental impairments, respite care for caregivers, etc.).

Non-commercial services needed in the community couldn’t exist without being paid for straight out, because providers can’t borrow and then generate income to repay loans, that’s not how they work (if they could do that, they’d be doing it already) – they need money that doesn’t have to be paid back.

Diverting public resources away from desperately needed services toward a commercial venture would only make things worse. The effect on the ground could lead to the commercialization of services intended for the relief of poverty, disability, pain, suffering and misery; by forcing service providers to also be profit makers (e.g. commercialized prisons); or reverting to relying on the whims of charity. If neither of these ‘choices’ worked-out (which history shows, they generally don’t), the community services essential for any viably functioning civil society might disappear altogether, and then “there goes the neighborhood” – social disintegration is a slippery slope, for everyone.

This is a very serious situation – it’s no time to be playing games.

In addition to these defining moral questions, there are also some more technical reasons why they won’t automatically work as suggested.

1. No bank’s an island – they’re all in it together.

A bank can only lend out what it can expect to receive back, not only from its borrowers in the long term, but also from all other banks through the clearing process in the very short term, i.e. usually overnight. Even if a State-run bank could attract other banks to have accounts with it and/or require its employees and suppliers to have accounts with it, the other banks would have to call in their loans by 10 or 12 times the amounts transferred (so there’d be no net gain in loans available). Of course, at some stage, all of its depositors would need to spend their money with people having accounts at other banks, so sooner or later its reserves would drain back to other banks and it would then have to call in its loans by 10 or 12 times as much. In any case, no bank can lend more than the prevailing level of lending of all other banks; every bank has to move in step with every other bank, otherwise it would soon sustain an adverse net balance through the clearing process and drain all its reserves to the other banks. It’s a complete error that any bank can just go ahead and multiply it’s ‘reserves’ or ‘capital’ by 10 or 12 times in loans. If the other banks aren’t lending, a State-run bank wouldn’t be able to lend either.

2. Don’t be fooled by what’s happening in a low-population State.

North Dakota has about 700,000 people, a strong community spirit based on farming in difficult conditions, and significant oil revenues. The model being presented is the Bank of North Dakota, which provides support services to some other banks in its area.2 But this arrangement won’t automatically translate to other States, as the banks in other States may not wish to engage in it, and requiring them to could be very unpopular. This could lead to significant risks to taxpayers. In 1931, the Government Savings Bank of New South Wales (a federated State of Australia), at that time the 2nd largest savings bank in the British Empire, was closed down by a run caused by a series of ‘scare’ stories put out in the media as part of a ‘political’ attack.3 If a similar action were possible against a State-run bank today, taxpayers might be called upon to pay for the aftermath (e.g. the Bank of North Dakota is not FDIC-insured(!), and is instead guaranteed by the State Government itself).

3. The promised golden goose may prove to be a noose.

What may look like a boost for taxpayers could end up being a ball-and-chain. For instance; where are States already in deficit going to get the money to set up a bank? As the President of the Bank of North Dakota, Eric Hardmeyer, explains (in the article cited above), to avoid a drain on existing deposits from other banks, and the consequent contraction in loans, a State government would probably have to issue bonds to raise the capital needed to set up a State-run bank.4 Yet more debt bondage at a time like this may be more than the State’s taxpayers can bear. In any case, a new bank would be as much of a burden on the community as any other bank. We would have the ridiculous situation of the people, as taxpayers, being put further into debt to build a debt factory to put the people, as the community, even further into debt.

4. States shouldn’t gamble taxpayer’s money on risky business.

The actual balances of State government bank accounts aren’t huge, and they don’t grow, because they’re always being spent – that’s what they’re for. The actual profit margins banks make on their funds under management are generally modest, so any returns from a relatively small loan portfolio, after deducting operating expenses and re-investment in the business, wouldn’t be anywhere near the amount required to fix the current fiscal shortfalls of the State governments. For example, in recent years the Bank of North Dakota has transferred between about a third to a half of its net income to the State coffers; ~$25 million in 2007, ~$20 million in 2008.5 The total budget for the State Government for the 2007-2009 fiscal period is $6.5 billion.6 A State law requires the bank to pay $60 million to the general fund over the same period – a contribution of less than 1% to the State budget. Meanwhile, State governments face average budget shortfalls of 24% for 2010 – so the numbers just don’t stack up.7 Weighing the pros and cons; relatively low potential returns compared to potential high risks (e.g. the concerted aggressive actions of other banks); it’s not a very good bet.

5. States would be better-off using their clout with the banks.

A more prudent course of action would be for State governments to negotiate more favorable contracts for their banking business with one or more banks. This would involve much less cost and trouble (e.g. recruiting competent staff and administering a new enterprise) than trying to set up a bank, especially when public services are being cut. The banks need those deposits – they’ll do anything to keep them (even if they don’t like to admit it).

6. We don’t need any more diversions.

We citizens have only so much energy and time to devote to changing our world for the better. Diverting good people into nonsense condemns us to continue suffering unnecessarily. This time of crisis must be used for real reform, not diversions.

So what is the solution?

It’s the monetary system which must be changed to end the fiscal crisis, and State governments cannot do this – it’s a matter for the Federal Government.

Under present constitutional and legal conventions, the only institutions that can create money without debt are national treasuries and/or central banks. State governments within a federal nation cannot do this – the problem can only be solved at the national level.

Proposals promoting anything else would require a constitutional amendment, which is not necessary.

There are some additional specious arguments being made within these promotions claiming that the U.S. Constitution (Article I, Section 8, Clause 5) does not authorize the U.S. Congress to issue non-coin money, so implying that it authorizes the States (or the people) to issue non-coin money.8 It most certainly does not. As Robert G. Natelson, in the Harvard Journal of Law and Public Policy, exhaustively and authoritatively determined, the term “coin” (with a lower-case “c”) means to create money in any form, whereas the term “Coin” (with an upper-case “C”) means coins.9

There’s also a lot of misinterpretations in these same arguments regarding the term “Bills of Credit” in the U.S. Constitution (Article I, Section 10, Clause 1) and “bills of credit” in other contexts, and the terms “Tender” and “Coin” (again). These misinterpretations lead to some ridiculous assertions like stating that: “The States violate the [U.S.] Constitution every day … to pay their debts … since gold and silver coins are no longer in general circulation.”10

All of these spurious ‘ideas’ only serve as distractions during a time of crisis.

We have a big problem in our economy and society today: too much debt. Banking cannot solve this problem because banking produces debt, which is the problem. It’s incredible that even now the delusion of borrowing ourselves out of debt is still seen as a solution, by anyone, let alone so-called reformers. We’re in a deep hole because we listened to cheerleaders yelling “keep on digging” without thinking. We cannot afford to keep doing this any more.

Proposing to get governments involved in banking is the complete opposite of a solution, because it keeps the problem in place.

“We don’t want to put the government into the banking business – we want to get the banks out of the money creation business!” – Dick Distelhorst

The correct solution to the crisis was presented in Stephen Zarlenga’s speech at the U.S. Treasury in December, 2003, titled “Solution to the States’ fiscal crisis” (read it at http://www.monetary.org). That solution has become the proposed American Monetary Act. In California, Governor Schwarzenegger has had a copy of The Lost Science of Money (the historical research which led to the solution) on his bookshelves since the spring of 2004.

Historical experience has taught us what we need to do:

1. Put the Federal Reserve System into the U.S. Treasury.

2. Stop the banking system creating any part of the money supply.

3. Create new money as needed by spending it on public infrastructure, including human infrastructure, e.g. education and health care.

The correct action is for Congress to fulfil its constitutional responsibilities to furnish the nation with its money by making the American Monetary Act law.

The correct action for the States is to insist on this Federal action!

Genuine monetary reform is the solution to the nation’s fiscal problems, and that can only be achieved at the national level.

The American Monetary Institute is sponsoring the 5th annual Monetary Reform Conference at Roosevelt University in Chicago, September 24-27, 2009, to bring together the best minds to get done what has to be done.

Jamie R. Walton

Bev

In case my first posting was too long.

Governor Brown should also consider the following, which can be viewed as the better alternate solution at a national level in order to help all states and so all the people as a whole:

“We don’t want to put the government into the banking business – we want to get the banks out of the money creation business!” – Dick Distelhorst

The correct solution to the crisis was presented in Stephen Zarlenga’s speech at the U.S. Treasury in December, 2003, titled “Solution to the States’ fiscal crisis” (read it at http://www.monetary.org). That solution has become the proposed American Monetary Act. In California, Governor Schwarzenegger has had a copy of The Lost Science of Money (the historical research which led to the solution) on his bookshelves since the spring of 2004.

Historical experience has taught us what we need to do:

1. Put the Federal Reserve System into the U.S. Treasury.

2. Stop the banking system creating any part of the money supply.

3. Create new money as needed by spending it on public infrastructure, including human infrastructure, e.g. education and health care.

The American Monetary Institute is a publicly supported charity founded in 1996. The real outcomes in society – whether there will be general economic justice or corrupt financial privileges for the few – are usually determined by the structure of a society’s monetary system.

The 7th Annual AMI Conference will be held at University Center, in Chicago, Sept. 29 – Oct. 2, 2011. The deadline for early registration is soon! We continue to confirm additional speakers for this year’s conference.

As someone who has taught about the Federal Reserve fraud since 1996, I recommend this strategy:
1. Given the historic failure to date to end the Fed’s debt-based “monetary” system (a “debt supply” rather than a money supply) and have the US issue debt-free money, this indicates the REQUIREMENT of broader education. AMI, Jamie, Stephen, Kucinich and others are champions for this policy goal and should continue in their advocacy.

2. Thousands of state legislators might by willing to take current bank powers into their own management for “at cost” credit creation for their states. The model of North Dakota as a budget surplus state is tremendously attractive and available to states without the need for federal action that has failed.

3. Therefore, I recommend taking both policy paths concurrently: continue to educate and advocate for AMI/Zarlenga’s bill to end the Robber Baron-era parasite of the Federal Reserve AND offer states the opening to learn and use current banking laws for maximum public benefit. If states took that step, it’s an easier place to stand in demanding federal monetary reform.

4. Educate the public on the above, as Washington’s Blog, Ellen Brown, AMI, and others so valiantly do!

Chris

California May Launch Public Bank, Which Could Help Take the Power To Manipulate the System Away From the Insolvent Giant Banks….????

Right,right…just like the “Public bank” called DC that pisses away peoples money by giving them to insolvent banks and green energy companies….

More power to the crony capitalists and their politicians! No, thanks!

Chris: the challenge of transparency at the Federal level if they created debt-free money is exactly the same as transparency at the state level if they created at-cost credit.

Legislators at the state level and their residents have their own minds and their own civic voices to determine for themselves if they want to take this step.

You’re welcome to argue against this option; I will continue to empower everyone to understand what banking is, how any group can start one, and use this education to invite people to maximize money and credit for public benefit.

http://freedom00is00earned.blogspot.com Patrick Donnelly

A Bill to study?????

An opportunity to squeeze private contributions!!!

Just do it!

wyn

People, people…
It’s not about the state being in the banking business. It’s not about the state creating or controlling currency. It’s all about where state income (taxes and fees) sits before it’s expended. Should it sit in Bank of America or in an entity that is controlled by the citizens of CA? Seems a pretty simple decision. And of the large banks no longer have any allegiance to the U.S. They are international entities, and make decisions based on their bottom line. A CA State Bank can make decisions based on what’s best for CA.

All the pages of studies quoted previously are some think tank’s paid for reasoning for keeping things in the private sector. Doesn’t matter what the so-called logical lines of reasoning are. Don’t care.

If the decision is between local vs. international… choose local. This is exactly the same as “Do I get better food, better service, better quality from my local Farmer’s Market than from my local Vons? Local Wal-Mart Superstore?

When given the choice, choose local control. In this case local is the State of CA.

Bev

Governor Brown must consider a true Debt-Free, Interest-Free Public/Government National money, a better solution to help all states and so all our people. Most urgently, this may be the only way to provide the vast amount of money needed to pay for the best attempts by engineers to reduce the continuous, horrifying amount of Radiation coming from Fukushima to California and the U.S., and to secure all the other nuclear power plants which are near the end of their life cycle. A Debt-Free Money is needed NOW and ONGOING through many future generations to deal with the risk of dangerous radiation, and climate change :

“We don’t want to put the government into the banking business – we want to get the banks out of the money creation business!” – Dick Distelhorst

Historical experience has taught us what we need to do:

1. Put the Federal Reserve System into the U.S. Treasury.
2. Stop the banking system creating any part of the money supply.
3. Create new money as needed by spending it on public infrastructure, including human infrastructure, e.g. education and health care.

The American Monetary Institute is a publicly supported charity founded in 1996. The real outcomes in society – whether there will be general economic justice or corrupt financial privileges for the few – are usually determined by the structure of a society’s monetary system.

The 7th Annual AMI Conference will be held at University Center, in Chicago, Sept. 29 – Oct. 2, 2011. The deadline for early registration is soon! We continue to confirm additional speakers for this year’s conference.

— Why States Going into the Banking Business is a Distraction, not a Solution to their Fiscal Problem and Reforms Nothing, American Money Scene Bulletin 5. This article is a comprehensive critique of the notion that instead of fixing the problem, governments should go into the banking business!

We, at the American Monetary Institute, have put together this list of resources that we hope can be a great starting point for any new student of monetary reform. Also, if you sign up to our email list using the box to the right, you will receive several of these articles over a span that will allow you to digest the material.

1. The Need for Monetary Reform

This article is an overview of our current monetary system and what needs to be done to fix it. It is a great, concise piece that can serve as an comprehensible introduction for anyone interested in learning about monetary history, theory or reform.

2. Monetary Reform Frequently Asked Questions

Answers to frequently asked questions on monetary reform issues such as, “Won’t the government creating new money for infrastructure and other expenses cause inflation?” and “How can we trust government with the power to create money? – Won’t they go wild (and again cause inflation)? Don’t you know that government can’t do anything right?”

3. 1930′s Chicago Plan

This plan was developed by the best economic minds in the country during the Great Depression. AMI’s proposed monetary reform legislation is closely modeled after this plan.

4. The Usury Problem Remains

This article outlines the inherent, structural flaws of a system which allows (and promotes) usury.

5. US Treasury Speech

This speech describes how the financial crisis came about, how it was the only possible outcome given our current monetary system, and what steps must be taken in order to put time on the side of justice in our monetary system.

6. Comprehensive Explanation of Monetary Reform (PDF)

A brief, 32 page, explanation of monetary reform. Great for those beginning their interest in monetary reform.

A Brief History of Money in the USA Dennis Kucinich launches the American Monetary & Financial Security Act in Congress!
American Money Scene 5-August 16, 2009
On August 23, 2009, in American Money Scene, by AMI

Dear Friends,

As you know the states are in terrible financial condition, cutting back on necessary programs, laying off people and raising taxes. This has been the case for several years, and thanks to the banking crisis has reached horrific levels in some states. This is the time – an opportunity to push for real reform, such as the American Monetary Act. But instead, ill advised suggestions have recently been circulated on the internet that the states go into the banking business to solve or lessen this problem. The American Monetary Institute concludes that these suggestions, though they may be for well meaning purposes, are bad ideas for a lot of reasons as described below. People involved in real monetary reform understand that the private creation of money through what amounts to a fractional reserve accounting system is at the heart of the monetary problem which has plagued humanity and has now brought down the world economy. That vicious system by which money is created in our society must be reformed, not imitated. But there is no reform whatever in the proposal for states to enter the banking business.

It would also distract lawmakers from facing the facts about the national reforms that are needed to solve this crisis and institute a money system grounded in justice, which will operate to promote the general welfare. It would even sanction and endorse the present fractional reserve banking system, the source of the problem. That system requires condemnation and structural reform, not endorsements! We now have a blog at the end of this article below, so that you may record and post your reactions to Mr. Walton’s research.

Sincerely,
Stephen Zarlenga
Director, AMI

Why States Going into the Banking Business Would be a Distraction, not a Solution to their Fiscal Problem

by Jamie Walton, AMI researcher

“We may not be able to stop them, but we can join them. We the people need to play the bankers’ game ourselves.”1 – that was written by one of the promoters of the notion that the state governments should go into the fractional reserve banking business to beat Wall Street at its own game and solve their fiscal problems.

What an insult to humanity! How about a dose of morality and common sense. Isn’t that like saying: “We’re victims of organized financial crime, so lets join the criminals!”

Trying to beat Wall Street at its own game is obviously not the answer. As Albert Einstein once said, “We can’t solve problems by using the same kind of thinking we used when we created them.”

Forty-eight States currently have budget deficits and many are sharply cutting services to try to close ‘fiscal’ gaps opening up to an average 24% by 2010.

Some attention has recently been given to the idea that State governments can get out of their fiscal problems by setting up their own banks. This is mainly a distraction away from genuine reform of the system, as encapsulated in the proposed draft American Monetary Act (more about that below).

The argument being put forward is that State governments can increase their revenues without increasing taxes by collecting profits from State-run banks. The proposal suggests that State governments go into the banking business and “fan” their deposits into 10 or 12 times as much in loans, using ‘fractional reserve’ or ‘capital adequacy’ rules, to cover fiscal gaps with bank profits.

This is a foolish suggestion, for several reasons.

1. You don’t solve a problem with more of the problem.

This scheme for states to go into the banking business would only ‘serve to protect’ the status quo. The ‘proposal’ completely fails to confront the main problem identified by all serious monetary reforms: ‘fractional reserve’ banking. Instead, it actually endorses and sanctions this vicious and destructive process, by suggesting that State governments engage in it – it’s immoral!

2. What the promoters describe is not how banking operates.

No single bank can multiply its deposits by 10 or 12 times in loans, they can only make loans (or purchases of securities, e.g. bonds) up against 90-95% of their deposits; these loans create new deposits, which, when spent, are most likely transferred to other banks; then receiving banks can again make new loans up to 90-95% of their deposits, and so on. This ‘process’ is repeated indefinitely, in ever-decreasing increments, and the effect over time is that the banking system as a whole multiplies those initial deposits by 10 or 12 times. The only reason some progressives might be considering this proposal is they don’t understand how fractional reserves work.

This process is carried on at great cost to the community as a whole, because every new loan (or new security purchase) is additional interest-bearing debt.

As presently operated, banks can be viewed as debt factories; they primarily create debt and only create the bulk of our money supply as a debt byproduct. Banks make profits and stay in business by putting the community as a whole into more debt than it can repay in any given time. This results in a net claim against the community going into the future. While some profits are paid to shareholders as dividends, this is only a small percentage of the debt created. If a bank was State-owned, the ‘shareholders’ would nominally be the people of the community, but any profits would still be based on the indebtedness of the community. That’s the inevitable outcome, no matter who owns a bank, because the same rules apply to all banks in the banking system.

But; the question is not who should be the beneficiaries of perpetual claims against the community, the question is should anyone be the beneficiaries of perpetual claims against the community – why place ourselves forever on a treadmill just to have what we’ve already got? It makes no sense.

3. The problem is being misidentified as interest, when the problem is debt.

Proponents of the scheme are alleging that interest collected by “private” banks is kept out of circulation and is therefore not available to repay loans the bank have made. But this is not true. Most, if not all, interest re-enters the system in some way at some time (e.g. as expenses, dividends, investments, etc.). This is not the problem. The problem is almost all of our money is created with a debt attached; it is ‘borrowed into existence’ from banks, who create it when we have to borrow it.

As our economy grows, we need new money, but almost all of the new money is presently created with interest-bearing debt, so almost every new dollar has more than a dollar owing on it – so it has to ‘earn’ more than a dollar and pay it all back to banks (who never had it in the first place). Who owns and runs any particular bank makes little or no difference because the debt-based money-creating banking system will still own and run us, on a treadmill.

Money doesn’t have to be created like this; coins aren’t, they’re just created as money, with no debt attached; when they’re issued, it’s revenue for the U.S. government, saving taxpayers $$$. All money can be created this way. And; if we don’t start with any debt, then we don’t start with any interest either.

With that in mind, let’s look again at the States’ fiscal crisis.

State governments receive money from the community for the provision of public services and the support of volunteer services. These are generally things that are needed in the community which aren’t commercial in nature, they’re not the types of things that it’s either possible or desirable to make a profit on (e.g. rape crisis centers, battered women’s refuges, assisted housing for people with physical/mental impairments, respite care for caregivers, etc.).

Non-commercial services needed in the community couldn’t exist without being paid for straight out, because providers can’t borrow and then generate income to repay loans, that’s not how they work (if they could do that, they’d be doing it already) – they need money that doesn’t have to be paid back.

Diverting public resources away from desperately needed services toward a commercial venture would only make things worse. The effect on the ground could lead to the commercialization of services intended for the relief of poverty, disability, pain, suffering and misery; by forcing service providers to also be profit makers (e.g. commercialized prisons); or reverting to relying on the whims of charity. If neither of these ‘choices’ worked-out (which history shows, they generally don’t), the community services essential for any viably functioning civil society might disappear altogether, and then “there goes the neighborhood” – social disintegration is a slippery slope, for everyone.

This is a very serious situation – it’s no time to be playing games.

In addition to these defining moral questions, there are also some more technical reasons why they won’t automatically work as suggested.

1. No bank’s an island – they’re all in it together.

A bank can only lend out what it can expect to receive back, not only from its borrowers in the long term, but also from all other banks through the clearing process in the very short term, i.e. usually overnight. Even if a State-run bank could attract other banks to have accounts with it and/or require its employees and suppliers to have accounts with it, the other banks would have to call in their loans by 10 or 12 times the amounts transferred (so there’d be no net gain in loans available). Of course, at some stage, all of its depositors would need to spend their money with people having accounts at other banks, so sooner or later its reserves would drain back to other banks and it would then have to call in its loans by 10 or 12 times as much. In any case, no bank can lend more than the prevailing level of lending of all other banks; every bank has to move in step with every other bank, otherwise it would soon sustain an adverse net balance through the clearing process and drain all its reserves to the other banks. It’s a complete error that any bank can just go ahead and multiply it’s ‘reserves’ or ‘capital’ by 10 or 12 times in loans. If the other banks aren’t lending, a State-run bank wouldn’t be able to lend either.

2. Don’t be fooled by what’s happening in a low-population State.

North Dakota has about 700,000 people, a strong community spirit based on farming in difficult conditions, and significant oil revenues. The model being presented is the Bank of North Dakota, which provides support services to some other banks in its area.2 But this arrangement won’t automatically translate to other States, as the banks in other States may not wish to engage in it, and requiring them to could be very unpopular. This could lead to significant risks to taxpayers. In 1931, the Government Savings Bank of New South Wales (a federated State of Australia), at that time the 2nd largest savings bank in the British Empire, was closed down by a run caused by a series of ‘scare’ stories put out in the media as part of a ‘political’ attack.3 If a similar action were possible against a State-run bank today, taxpayers might be called upon to pay for the aftermath (e.g. the Bank of North Dakota is not FDIC-insured(!), and is instead guaranteed by the State Government itself).

3. The promised golden goose may prove to be a noose.

What may look like a boost for taxpayers could end up being a ball-and-chain. For instance; where are States already in deficit going to get the money to set up a bank? As the President of the Bank of North Dakota, Eric Hardmeyer, explains (in the article cited above), to avoid a drain on existing deposits from other banks, and the consequent contraction in loans, a State government would probably have to issue bonds to raise the capital needed to set up a State-run bank.4 Yet more debt bondage at a time like this may be more than the State’s taxpayers can bear. In any case, a new bank would be as much of a burden on the community as any other bank. We would have the ridiculous situation of the people, as taxpayers, being put further into debt to build a debt factory to put the people, as the community, even further into debt.

4. States shouldn’t gamble taxpayer’s money on risky business.

The actual balances of State government bank accounts aren’t huge, and they don’t grow, because they’re always being spent – that’s what they’re for. The actual profit margins banks make on their funds under management are generally modest, so any returns from a relatively small loan portfolio, after deducting operating expenses and re-investment in the business, wouldn’t be anywhere near the amount required to fix the current fiscal shortfalls of the State governments. For example, in recent years the Bank of North Dakota has transferred between about a third to a half of its net income to the State coffers; ~$25 million in 2007, ~$20 million in 2008.5 The total budget for the State Government for the 2007-2009 fiscal period is $6.5 billion.6 A State law requires the bank to pay $60 million to the general fund over the same period – a contribution of less than 1% to the State budget. Meanwhile, State governments face average budget shortfalls of 24% for 2010 – so the numbers just don’t stack up.7 Weighing the pros and cons; relatively low potential returns compared to potential high risks (e.g. the concerted aggressive actions of other banks); it’s not a very good bet.

5. States would be better-off using their clout with the banks.

A more prudent course of action would be for State governments to negotiate more favorable contracts for their banking business with one or more banks. This would involve much less cost and trouble (e.g. recruiting competent staff and administering a new enterprise) than trying to set up a bank, especially when public services are being cut. The banks need those deposits – they’ll do anything to keep them (even if they don’t like to admit it).

6. We don’t need any more diversions.

We citizens have only so much energy and time to devote to changing our world for the better. Diverting good people into nonsense condemns us to continue suffering unnecessarily. This time of crisis must be used for real reform, not diversions.

So what is the solution?

It’s the monetary system which must be changed to end the fiscal crisis, and State governments cannot do this – it’s a matter for the Federal Government.

Under present constitutional and legal conventions, the only institutions that can create money without debt are national treasuries and/or central banks. State governments within a federal nation cannot do this – the problem can only be solved at the national level.

Proposals promoting anything else would require a constitutional amendment, which is not necessary.

There are some additional specious arguments being made within these promotions claiming that the U.S. Constitution (Article I, Section 8, Clause 5) does not authorize the U.S. Congress to issue non-coin money, so implying that it authorizes the States (or the people) to issue non-coin money.8 It most certainly does not. As Robert G. Natelson, in the Harvard Journal of Law and Public Policy, exhaustively and authoritatively determined, the term “coin” (with a lower-case “c”) means to create money in any form, whereas the term “Coin” (with an upper-case “C”) means coins.9

There’s also a lot of misinterpretations in these same arguments regarding the term “Bills of Credit” in the U.S. Constitution (Article I, Section 10, Clause 1) and “bills of credit” in other contexts, and the terms “Tender” and “Coin” (again). These misinterpretations lead to some ridiculous assertions like stating that: “The States violate the [U.S.] Constitution every day … to pay their debts … since gold and silver coins are no longer in general circulation.”10

All of these spurious ‘ideas’ only serve as distractions during a time of crisis.

We have a big problem in our economy and society today: too much debt. Banking cannot solve this problem because banking produces debt, which is the problem. It’s incredible that even now the delusion of borrowing ourselves out of debt is still seen as a solution, by anyone, let alone so-called reformers. We’re in a deep hole because we listened to cheerleaders yelling “keep on digging” without thinking. We cannot afford to keep doing this any more.

Proposing to get governments involved in banking is the complete opposite of a solution, because it keeps the problem in place.

“We don’t want to put the government into the banking business – we want to get the banks out of the money creation business!” – Dick Distelhorst

The correct solution to the crisis was presented in Stephen Zarlenga’s speech at the U.S. Treasury in December, 2003, titled “Solution to the States’ fiscal crisis” (read it at http://www.monetary.org). That solution has become the proposed American Monetary Act. In California, Governor Schwarzenegger (and now I would bet Governor Brown) has had a copy of The Lost Science of Money (the historical research which led to the solution) on his bookshelves since the spring of 2004.

Historical experience has taught us what we need to do:

1. Put the Federal Reserve System into the U.S. Treasury.

2. Stop the banking system creating any part of the money supply.

3. Create new money as needed by spending it on public infrastructure, including human infrastructure, e.g. education and health care.

The correct action is for Congress to fulfil its constitutional responsibilities to furnish the nation with its money by making the American Monetary Act law.

The correct action for the States is to insist on this Federal action!

Genuine monetary reform is the solution to the nation’s fiscal problems, and that can only be achieved at the national level.

The American Monetary Institute is sponsoring the 5th annual Monetary Reform Conference at Roosevelt University in Chicago, September 24-27, 2009, to bring together the best minds to get done what has to be done.

The American Monetary Institute is proud to announce the 10th Annual
AMI Monetary Reform Conference, October 2-5, 2014

The American Monetary Institute proudly announces its 10th annual Monetary Reform Conference in Chicago. Our conferences launched the modern grass roots movement for U.S. monetary reform and thereby World reform. You are invited to attend this important meeting in beautiful downtown Chicago. Our money system clearly needs a serious overhaul to secure economic justice, peace and prosperity as we enter the third millennium. True reform, not mere regulation, is necessary to move humanity away from a World dominated by fraud, warfare and ugliness and toward a world of justice and beauty. You can avoid discouragement and join with us in this adventure to achieve positive money results for America and the world.

Don’t be discouraged because the villians who created the present crisis, have manipulated governments to bail them out. The media, which has made such “errors” possible, and the economic theories behind banker activities already stand accused in the public mind.

Main Themes of the Conference: Implementing Monetary Reform now!

The Monetary Reforms

The main focus of the conference will be for researchers to describe and make the case for the kind of monetary reforms advocated, presenting both the logical and historical basis for them, and the mechanics of implementing them.

Extensive question and answer periods and panel discussions can air doubts or concerns regarding the desirability of the reforms and suggest refinements. Included will be discussions of research and thinking methodology.

Achieving the Reforms – What we can do now

Selected political, social and monetary activists will give the benefit of their experience in educating, raising public awareness, organizing and motivating people and governmental bodies to influence public policy decisions.

Using the Reforms

Presentations on how a properly reconstituted money power within government will be effectively used to “promote the general welfare”. These will focus on Infrastructure Programs particularly how to pay for the $2.2 trillion the

American Society of Civil Engineers tells us is needed to maintain our infrastructure over the next 5 years, through monetary reform. Understand that we include the “human infrastructure” of Health Care and Education within infrastructure! With proper monetary reform all these things become possible, including education and health, upgrading

America’s crumbling infrastructure, towards futuristic energy efficient, eco-friendly designs well within the reach of today’s technology and economy. We can create hospitable, clean, cities of the future using 21st century solutions.

This conference is open to the public*, and to properly organize it the AMI requires a minimum donation of $395 per attendee; $625 (to include significant other). For early registrations which are still available, the minimum donation is only $295. This includes substantial conference materials and aids, daily coffee breaks, a Get Acquainted Reception and a Celebration Dinner and beach barbecue. Hotel and travel costs are separate at group discounts. We say minimum donation because affluent attendees who want to help out with larger donations are encouraged to do so. It enables us to extend attendance scholarships to students. Looking forward very much to seeing you and advancing monetary reform to the next level.

The Conference (and Reception and Dinner) are at University Center at 525 S. State Street in the heart of Chicago.

Dr. Michael Clark of the United Nations will focus on the international dimensions of the effort to achieve systemic reform of the international monetary and financial system, including how the IMF structure and operating procedures may be revamped to become a positive factor in monetary reform.

Prof. Joseph Huber from Martin-Luther University of Halle-Wittenberg in Germany, one of Europe’s most important monetary reformers, will analyze Modern Money Theory and the associated views on money, credit, and debt.

Dr. Michael Kumhof, Deputy Division Chief of the Modeling Division, Research Department, IMF, will present his findings when applying the Chicago Plan, basis of HR 2990, to today’s economy using computer modeling techniques.

Prof. Kaoru Yamaguchi will give an outstanding analysis of HR 2990, placing it through his advanced systems analysis software, determining it would pay off the US national debt and provide the necessary funding for infrastructure (solving the unemployment problem) and do it without inflation.

Prof. Steve Keen, advanced Australian banking and monetary investigator, author of the important book “Debunking Economics,” which can begin leading the way out of the economic morass which economics has undeniably created around the world.

Prof. Richard Werner has emerged as the central figure advising monetary authorities of the European money system to cease their destructive austerity programs, and he will discuss his involvement with this issue.

Prof. Nic Tideman of Virginia Tech (formerly Senior Economist on the President’s Council of Economic Advisors) discusses how banks will compete after monetary reforms are in place.

Prof. Michael Hudson, UMKC professor and PBS commentator and one of the rare economists to accurately forecast the mortgage and housing debacle – in a front page Harper’s Magazine article – will share his latest important observations on what the banking establishment is up to now.

Stephen Zarlenga is Director of the American Monetary Institute and author of The Lost Science of Money. He will highlight the progress at AMI, and the direction of monetary reform in America.

Jamie Walton, a knowledgeable money reformer from New Zealand, describes HR 2990 and why all three elements must be put into effect. He works on monetary legislation in Washington DC.

Robert Poteat, long term and meticulous monetary researcher, is certainly among the top half dozen in America in awareness of monetary systems. He is the leader of the AMI Chapters in Portland, Seattle and Central Washington. Previously he has discussed why monetary reform is largely a moral question.

Joseph Pijanowski, the Directing Business Representative of the International Association of Machinists and Aerospace Workers Union, Local 126, focuses on the monetary solution to American labor problems our country faces.

Mark Pash is a Certified Financial Planner with a Bachelors and Masters in Business Administration, from UCLA and USC respectively. He will review his 24 reasons for monetary reform and the 13 ways to overcome the inflationary objection.

Andrew Jackson is currently Head of Research at Positive Money in the UK. He will discuss Positive Money’s strategy for progressing the monetary reform agenda in the UK, before showing how this links into his latest research, a proposal to combine monetary and fiscal policy which will allow the state to create and spend money into circulation.

Greg Coleridge, Director of the Northeast Ohio American Friends Service Committee. He is on the National Steering Committee of the Move to Amend/Campaign to Legalize Democracy Program on Corporations, Law & Democracy (POCLAD) national collective.

Steven Walsh, leading Chicago educator and expert authority on New England Colonial moneys, will describe how banks create money out of thin air.

Joe Bongiovanni is a second-generation monetary reformer. He has been studying money systems for over 40 years, being the co-founder and co-Director, with J. Peter Young, of the Kettle Pond Institute for Debt-free Money.

Prof. William Black of UMKC, who successfully ran the savings and loan crisis rescue in the 90′s and brought it to successful conclusion using only $150 billion of the $300 billion alloted by Congress. He previously spoke on Fraud’s Critical Role in Producing the Financial Crisis.

Elizabeth Kucinich, wife of Congressman Dennis Kucinich and key supporter of HR 2990, will speak on advocating for monetary reform.

Will Abrams of British Columbia presents the important and neglected story of Gerald G. McGeer, the “father” of the Bank of Canada, who instituted major monetary reforms along the lines of the American Monetary Act.

Ole Mackeprang, European financier brings us up to date on the situation in Europe. He speaks 8 languages and has worked in 62 countries, principally France, Germany, Italy and Spain.

David E. Kelley is a noted pensions expert and economic advisor. He presented concepts for achieving economic justice.

William Bergman, Economist and Formerly an official at the Chicago Federal Reserve Bank, until he became a whistleblower on Fed practices focuses on the present condition of banking after the massive bailouts.

Carol Brouillet, involved in monetary reform since 1993 and recent candidate for Congress in California, discusses strategy for the monetary reform movement.

Michelle St. Pierre, leader of the highly successful Ron Paul movement in north Washington state discusses how to turn talk into action.

Dr. Ed Chambers, who trained Barack Obama in street organizing when he came to Chicago’s South Side from Harvard, discussed how power results from organized money or organized people.

Dr. Cay Hehner, Director of the New York Henry George School of Social Science discussed the end of capitalism as we know it.

Richard Cook, formerly the NASA whistleblower on the Challenger disaster. He then spent 2 decades at the U.S. Treasury and has a lifetime in monetary/economic studies, spoke on questions of justice in monetary and economic matters.